7 Deeply Undervalued Oil and Gas Stocks to Consider

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 |  Includes: ATPAQ, COP, GMXRQ, RRC, SD, UPLMQ, XOM
by: Vatalyst

The risk-off trade has sent many oil and gas stocks tumbling. We looked at seven oil and gas stocks that may be considered as undervalued. Here’s what we found:

ATP Oil & Gas Corporation (ATPG): An oil and gas production company, with fields in the Gulf of Mexico, and the U.K. and Dutch sectors of the North Sea. Its reserves include 126 million barrels of crude oil equivalent, 75 million barrels of crude, and 300 billion cubic feet of natural gas.

Shares are trading at $10.71 at the time of writing, a little above the bottom of their 52-week trading range of $6.26 to $21.40. At the current market price, the company is capitalized at $546.54 million. Earnings per share for the last fiscal year came in at -$9.21, and the company paid no dividend.

Its earnings have been hit by costs of further exploration, and the BP oil disaster in the Gulf. But they are expected to rise through the next couple of years, as production comes on from wells such as the Clipper project, and will turn positive through 2012. Revenue during this time is forecast to increase to by over 30% to around $1.06 billion.

The shares, at close to their 52-week high, look good value on both proven resources and production expected. Expect fireworks on the upside from this undervalued stock.

ConocoPhillips (NYSE:COP): Shares are trading at $67.75 at the time of writing, in the middle of their 52-week trading range of $52 to $81.80. At the current market price, the company is capitalized at $93.02billion. Earnings per share for the last fiscal year were $7.93, placing the shares on a price to earnings ratio of 8.55. It paid a dividend of $2.64, a yield of 3.90%

These earnings are expected to rise through the next couple of years, hitting $8.33 this year, and then rising to $8.86 the following year. Revenue during this time is also forecast to increase to around $250.51 billion.

ConocoPhillips is a great dividend payer, with a pay-out ratio of around 30%, and 10 years of consecutive increases. It looks set to continue with its dividend policy which will support the shares. Any increase in oil prices will positively impact this well run company.

GMX Resources Inc (GMXR): With most of its operations in the United States, GMX Resources is involved in the exploration and production of oil and natural gas in the western U.S.

Shares are trading at $3.05 at the time of writing, at the bottom of their 52-week trading range of $3.23 to $6.56. At the current market price, the company is capitalized at $192.06 million. Earnings per share for the last fiscal year were negative at -$5.62, The company expects its earnings to turn positive in 2012, which would be a massive turn around after nearly two years of increasing losses. It has recently rewritten some of its debt portfolio, and this may help it to recover the ground that it has lost.

This is a stock that may see a recovery from its low, but is a speculative buy at this stage until some firmly positive news is seen.

Sandridge Energy Inc (NYSE:SD): Sandridge explores for oil and natural gas opportunities in the United States (mostly in west Texas), and has over 3,300 producing wells.

Shares are trading at $6.55 at the time of writing, and in the lower half of their 52-week trading range of $3.87 to $13.34. At the current market price, the company is capitalized at $3.06billion. Earnings per share for the last fiscal year were -$0.09. It paid no dividend last year.

The company has recently announced its latest earnings, and amongst the statement was direction that its capital expenditure would increase from $1.3 billion to $1.8 billion, due to increasing efforts to bring on line its Mississippian oil production. While this seems a lot of extra expenditure, the fields are producers of oil, which has far higher profitability than their gas production at current price levels.

Consequently, earnings are expected to turn positive this year and then grow to $0.50 in 2012. Sandridge is a forward looking company that believes it has sourced a good financing deal with Atinum Partners, monetizing nearly $600 million of cash which will allow the additional exploration costs to be met. If these prove as lucrative as CEO Tom Ward believes, then earnings could be under estimated and the shares could fly.

Ultra Petroleum Corp (UPL): The company develops oil and gas predominantly in the Green River Basin in Wyoming, and the Marcellus Shale in Pennsylvania.

Shares are trading at $38.23 at the time of writing, with a 52-week trading range of $37.10 to $51.20. At the current market price, the company is capitalized at $5.85billion. Earnings per share for the last fiscal year were $2.14, placing the shares on a price to earnings ratio of 17.87.

Shares have been under pressure by the spectre of increased expenditure in its new properties in the Niobrara. However, this will diversify its operations and should its activities on 100,000 acres of land in this region prove as fruitful as the management expects, then earnings per share could exceed the estimated $2.86 in 2012 and the shares will be seen to have been undervalued at current levels.

Range Resources Inc (NYSE:RRC): RRC develops natural gas properties in the Southwest and the Marcellus (where it has 1.1 million net acres), and the company owns 5,000 producing wells.

Shares are trading at $51.90 at the time of writing, with a 52-week trading range of $32.25 to $67.33. At the current market price, the company is capitalized at $8.20billion. Earnings per share for the last fiscal year were -$1.890. It paid a dividend of $0.16 last year (a yield of 0.30%).

Though these earnings are expected to move into positive territory through the next couple of years, the price of shale gas could find it hard to move upwards to any great extent. This could inhibit growth, which is due to be in the region of 10% year on year. A share to buy on dips toward the twelve month lows.

Exxon Mobil Corp (NYSE:XOM): Exxon Mobil is one of the oil giants, and operates from exploration, through production, to sales in a world wide capacity.

Shares are trading at $70.19 at the time of writing, with a 52-week trading range of $58.05 to $88.23. At the current market price, the company is capitalized at $345.76 billion. Earnings per share for the last fiscal year were $7.59, placing the shares on a price to earnings ratio of 9.25. It paid a dividend of $1.88 last year (a yield of 2.50%) which was covered 4.03 times by its earnings.

These earnings are expected to increase with a solid oil price through the next two years, hitting $8.57 this year, and then rising to $9.04 the following year. The company is well managed, and well placed to take advantage of opportunities as they come along. With good cash flow, and steady to firm oil prices, dividend increases will continue (28 consecutive years to date). A stock that trades on an undemanding price to earnings ratio, that will benefit shareholders looking for capit

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.